The Hindu Business Line : Microsoft Corporation vs Commission of European Communities

Between April 24 and 28, Grande Salle of the Court of First Instance, Luxembourg, is busy with an important case. It is numbered T-201/04: Microsoft Corporation vs Commission of the European Communities.

To know what it's about, begin with the `Information for the press' dated March 17, 2006, on http://curia.eu.int, the site of the Court of Justice of the European Communities. It begins thus: "In a decision of March 24, 2004, the Commission found that Microsoft had infringed Community competition law by abusing its quasi-monopoly on the PC (personal computer) operating-systems (OS) market."

Such an abuse would result in a restriction of competition on the markets for OS for servers and for media players, said the EC (European Commission). Microsoft was ordered to take corrective measures and fined euro 497 million. "On June 7, 2004, Microsoft lodged an action before the Court of First Instance, requesting annulment of this decision or a substantial reduction in fine imposed." Hearings now on are before a special 13-judge panel, at what is Europe's second-highest court.

On April 24, "Microsoft's rivals presented memos swapped between the company's top brass including Bill Gates, which, they said, showed it planned to shoot down the then top media player provider, RealNetworks, in the same way it demolished former Internet browser provider Netscape," as one learns from a report by Sabina Zawadzki and David Lawsky on http://today.reuters.com.

On April 25, `involved questions' are expected. The next two days will keep the court busy with "Microsoft's failure to give information that would help rivals create software able to run with Windows as smoothly as Microsoft's own software." A decision in the case is not expected for months, possibly a year, notes Reuters.

March 2004 decision

Meanwhile, we can catch up with the March 2004 decision — a 302-page text — on http://europa.eu.int, the site of `Europa, The European Union On-Line'. The complainant was Sun Microsystems, Inc. On December 10, 1998, Sun had alleged infringements of Article 82 of the EC Treaty by Microsoft. Featured under `Competition', this Article prohibits "any abuse by one or more undertakings of a dominant position in the common market or in a substantial part of it."

Such abuse may consist in: "(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts."

After a first investigation of Sun's complaint, the EC sent Microsoft a Statement of Objections on August 1, 2000. The EC also launched an investigation of Microsoft's Windows 2000, and incorporation ofWindows Media Player into its OS products. In August 2001, the EC sent a second Statement of Objections to Microsoft.

Evidence for and against

When responding to these, Microsoft also sent 46 customer statements, from enterprises, administrations and system integrators. In 2002, the EC sent a round of requests to these 46 customers, seeking quantitative data on use of Microsoft's products. Moreover, the EC conducted a wider market enquiry in 2003; to this, responses were over 100, "covering more than 1.2 million client PCs (desktops and laptops)." In parallel, 46 requests for information were sent in April 2003 to content owners, content providers, and software developers, on the incorporation of WMP into Windows. In August 2003, the EC sent a supplementary Statement of Objections to Microsoft. The company submitted analysis of three surveys conducted by Mercer Management Consulting.

As things progressed, major Microsoft competitors and industrial associations — such as the Association for Competitive Technology, TimeWarner, the Computer and Communications Industry Association, the Computing Technology Industry Association, Free Software Foundation Europe, Lotus Corporation, Novell, RealNetworks, and the Software and Information Industry Association were admitted as `interested third parties' to the case. They too filed their submissions.

For instance, Paragraph 953 of the verdict cites RealNetworks' filing before the US SEC (Securities and Exchange Commission), where it advised investors, "in light of Microsoft's efforts and dominant position in operating systems, our market position may be difficult to sustain." An oral hearing took place in November 2003.

Interoperability information

Sun's contention was that Microsoft infringed Article 82 of the Treaty "by reserving to itself information that certain software products for network computing, called work group server operating systems, need to interoperate fully with Microsoft's PC operating systems." The withheld interoperability information is necessary to viably compete as a work group server operating system supplier, Sun said.

Microsoft pointed out that there was no meaningful consumer demand for client OS without multimedia functionality, but the EC rejected the objection. Another argument of Microsoft that was set aside was that removing the WMP code would undermine the integrity of the OS. (On Monday, Microsoft claimed it was being treated like `a cobbler ordered to sell shoes without laces'!)

Remedies and fines

Part 4 of the verdict is titled `Microsoft behaviour'. Of immediate interest, however, is Part 6, on `Remedies and fines'. Para 999 stipulates: "Microsoft should be ordered to disclose complete and accurate specifications for the protocols used by Windows work group servers in order to provide file, print and group and user administration services to Windows work group networks."

Para 1002 says, "Disclosed information will have to be updated each time Microsoft intends to bring to market new versions of its relevant products." Microsoft will have to offer a version of Windows for client PCs that does not include WMP, mandates Para 1011. "The unbundled version of Windows must in particular not be less performing than the version of Windows which comes bundled with WMP," insists the following para.

What the EC found `fundamentally unacceptable' was the software giant's reasoning — that its dominance in the client PC OS market uniquely enabled it to leverage its market power through tying its streaming media player. Overall duration of Microsoft's infringement is five years and five months, said Mario Monti, Member of the Commission. "Amount of the fine to be imposed on the basis of the gravity of the infringement should therefore be increased by 50 per cent to take account of its duration," he decided.

At the time of writing this, `Update 6' on www.forbes.com, `1 hour ago', informs of Tuesday's proceedings. Another report, `28 minutes ago', cautions: "EU's Microsoft Case Could Endanger Vista."

The last word hasn't been said yet.

ZeroBase@TheHindu.co.in

D. Murali

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